Asia Index Pvt Ltd, a joint venture between the S&P Dow Jones Indices and the BSE, has launched a new Gold Hedged Index and Dynamic Gold Hedged Index, the first such indices in India.
These indices can serve as the basis of investment products such as ETFs that allow investors to benefit from the returns of the Indian equity market while hedging against a decline in the value of the Indian rupee versus gold.
The two indices are designed to simulate the total returns of the benchmark Sensex with a hedge against the fluctuations of the rupee against gold. The risks involved in investing in equity continue, however.
The Gold Hedge is calculated as a combination of a long Sensex total return position and Gold Mini futures contracts on the Multi Commodity Exchange of India (MCX).
Historically, gold and equities noted no correlation or very low correlation with each other. The S&P BSE gold hedged indices are designed to provide gold exposure to the portfolio in a more capital efficient way.
The Gold Hedged Index is rebalanced monthly, during the one-day roll of the gold futures contracts to equalise notional exposure to equity and gold.
The S&P BSE Sensex Dynamic Gold Hedged Index is rebalanced monthly during the five-day roll of the gold futures contracts to adjust the notional exposure of equity and gold.